UK borrowing running more than 25pc over target

Government borrowing for the first five months of the financial year is
running at more than 25pc above target, official figures showed as the
deficit in August hit a record high, casting further doubt over the
Chancellor's debt reduction goals.

In the five months to August, and excluding the one-off savings created by the Royal Mail pension fund and the Bank of England’s Special Liquidity Scheme, the Government has borrowed £61.3bn – 26.7pc more than in the same period last year. The official borrowing target for the whole year is an increase of just 0.5pc.

Economists said the scale of the current overshoot, which has been caused by falling tax receipts and rising spending, is so large that the Chancellor will not be able to claw it back in the final seven months.

<noframes>Interactive chart: National debt</noframes>

Both the British Chambers of Commerce and the CBI expect the Government to borrow £20bn more than planned this year, while IHS Global Insight UK economist Howard Archer said that “if this trend were to continue, borrowing would come in at £25bn above target”.

The bleak picture on borrowing, which is on course to rise sharply despite £18bn of austerity this year, threatens to undermine the Chancellor’s fiscal rules. “It is likely in his autumn statement that he will either have to acknowledge that he will be unable to start bringing down debt as a percentage of GDP by 2015/16,” Mr Archer said.

Sir Mervyn King, the Governor of the Bank of England, has also suggested that the debt reduction target will be missed, but he claimed that abandoning the pledge would be “acceptable” as long as it was due to a slowdown in global growth.

Despite the warnings, borrowing in August was marginally lower than expected. Although it hit a record of £14.41bn, slightly up from £14.37bn in August last year, economists had feared borrowing would hit £15bn in the month.

However, the figures were helped by revenue from the sale of Olympic tickets, which were booked in the month and trimmed borrowing by £500m, the Office for National Statistics said.

The national debt edged up to £1.04 trillion, or to 66.1pc of GDP.

The public finances have been hit by weak tax receipts and higher spending as a result of slower growth. In August, receipts were £41.4bn, a 1.8pc fall on the same month last year. For the first five months together, though, receipts have been 0.4pc higher. Spending in August was 2.5pc higher than last year at £52.5bn, and is so far 3pc higher than for the year to date in 2011.

Net investment in capital projects in August was 5.1pc higher in August at £1.7bn and, excluding the Royal Mail and SLS effects, is £1.2bn so far this year – £1.2bn more than in 2011.

Chris Leslie, Labour’s shadow Treasury minister, said: “These figures show that the deficit is rising because the Government’s economic plan is failing.”

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